Blog / Global Trading / Investment landscape changes:

Global Trading / Investment landscape changes:

In the “Learning Center”material we stated that the currentimplementation of the predictor system isnot taking into accountthefinancialor stock markets outside of the US tomake the final computation.

It must be handled separately, taken into account by themarket player.

One reasonof this is theextremelycomplexglobalinvestment landscape, impacted by government politics andmany other factors, which is very hard to quantify, in addition to the fact thatthe whole impact changes very dynamically.

The population of Earth was less than 1 billionabout 100 years ago.

Today it is over 6 billion,andthere is a tough competitive rage for theresources of the planet. (Oil, other non-renewable resources, energy, food,water, metal, especially precious metals…)

The other major reason of this rage is thattheworld financial system isbroken,the people do not trustgovernments andfiat moneyto help themstorethe value of theirsavings any more.

We are witnessing tectonic shifts in the globaleconomic landscape,changes, that willrearrange theweights ofmany countries, whether we like it or not.

Themost important driveof these changes is the US, and the BRIC countries (Chine, India, Russia and Brazil),as the BRICforces the developed world to readjusttheir life to accommodate the needs of thoseemergingmarkets.

Their argument is pretty simple and compelling: It is not fairthatless than 5% of the word population consumes more than 50% of the resources,while others probably working even harder,can’t enjoy thebenefits of the planet as much as they would like to.

The governmentsof theBRIC countries made it clear,that they would like to have their impactincreased in the forums ofworld economic decision makers.

It is alsoobvious, that theygot very disappointedin the US political leadership andabout the future of the US dollar.So theyopenly following a strategywhich will help themin thedecouplingfrom the current dependencies to the western economic world leadership, by strengtheningeconomicties between BRIC members.

To investigatethe interdependencies of some important world markets, we do noteven need to go outside of the US stock markets.

There are manyGlobal ETF – s currently traded on US exchanges, and those ETF-smirroring the performanceofthe stock market offoreign economies.

TheETF Symbols, that we used in our study:

- US:S&P500:$SPX

-Australia:EWA

-Japan:EWJ

-South Korea:EWY

-China: FXI

-S&P Europe 350:IEV

-Brazil: EWZ

-Russia: RSX

-India: INP

Westudied the correlationof theseindices Before the USrecession period (January 2003 till December 2007)and after the start of the US recession (From 2007 December till 2010 October)

The two exceptions areINP, following the Indian market index and RSX, following the Russian index. These twosymbols were not traded from the beginning of our test period, so weexamined them only after the start of the USrecession.

The correlation of these ETF-s to theUSeconomy – mirroringS&P500 indexshows ussome very interestingdynamicsin the following table:

Note, that when we calculated the Correlation, we used the Daily percentage changes in the above mentioned ETF-s andtheS&P500 index.

Someof the important conclusions andconsiderations:

-Before the beginning of the US recession, all world markets had relatively lower dependencyfrom the US markets, excluding the EuropeanS&P350 index, whichcorrelated pretty well evenbefore the crisis.

-Since the beginning of the recessionthe correlation increased,in some cases (Like Australia)increased considerably,and currentlyhave a relatively highvalue, even thoughthe BRIC would like to decouple,the US crisis gripping them all. thoughthe performance oftheAsian marketsare better, in some cases much better than the performance of the US market (For exampleKorean index moved upabout20%, while the S&P500 moved up only about 10% recently) the direction of the movements are often in synch.

-The present correlation between the S&P Europe 350 and the US S&P500 is the highest, it is almostfrighteningly high.The 0.92 correlationmeansfor the trader, that every time, when the European indexup / downmore than a little (For example inthe green or in the red0.5%)thanthe US market will be Up / Downthe same daywith a roughly70% probability just based on these correlations.

It is almost assuring, that in case Either Europe or US slips back into recession, thanthe other will followpretty soon.

-Contrary tocertain common belief, this data suggest, that Wall Street Today exert more impactover the word economythan it did 3 years ago, before the financial crisis started.

-The least correlated market currently is India, but its index still have a relatively high correlation.

-Diversification between international stock markets will

not work very well during this highly correlated period.

-Globalization and growing international trade volume during the past 20 - 30 yearsincreased the interdependencies of the international markets. It is good and could be really fruitful,if the population of the world can enjoy piece.

Butifpiece would be disruptedby potential economic or financial breakdowns or wars, than the consequences couldaffectthe whole world population. This also means that the responsibilities of major economic powers and decision makers increased.